Case Study #6: Southwest Airlines – Much LUV for the Hub Expansion Strategy

Southwest Airlines does an exemplary job of delivering consistent, high levels of customer service across all points of brand contact, from the time one books a ticket online to the time they disembark at their final destination. What’s not to “luv” about this company?

Southwest prides itself on being punctual, an invaluable brand asset for any airline company. Its business model is based on operating out of smaller hubs where costs are low and productivity is high because incoming planes can land immediately and get back in the air after off-boarding and on-boarding passengers. The company has been very successful based on this business model. The Dallas-based airline has been profitable for 36 straight years but has been in the red since last fall. Traffic is down and costs are rising ((“If Southwest can make it there”, Associated Press, 25 June 2009).

This past Sunday, Southwest began service at LaGuardia Airport, one of the nation's most congested airports. It plans to operate out of other major hubs, one being Boston’s Logan Airport. This is perceived as risky because it may affect Southwest’s brand position as being punctual if it operates out of bigger airports known for congestion and delays. In addition, Southwest has to win the loyalty of business travelers who will increasingly dictate its future prospects for success (Associated Press).

Airlines generate higher margins from business travelers than leisure travelers. Southwest is generally perceived as the airline for cost-conscious vacationers, not the airline for corporate jetsetters. Brands which attempt to attract customer segments that are on the periphery of the target core customer base may exhaust significant resources for incremental financial gain. While the value of superior customer service across all points of brand contact may rank differently for the college senior going on spring break than the chief executive officer visiting a new manufacturing plant, Southwest maintains a powerful leadership position in the very important category-specific attribute of customer service, regardless of segment feedback. As Southwest extends operations in major hubs, they will undoubtedly dilute their brand position in punctuality, but recover and then gain from those losses through competitive pricing actions and service differentiation across profitable segments. Punctuality or the lack thereof is an accountability that is generally dispersed across the complex air transportation system, not to mention other unforeseen factors that may keep a plane on the ground for hours. Instead, Southwest must focus on maintaining excellent customer service as it executes the hub growth strategy. Given the internal camaraderie around Southwest corporate principles and values, service differentiation will not be traded off for revenue. There will always be LUV for the traveler at all points of brand contact.